Commissioner of Income Tax-8 vs Kayfab Enterprises Pvt. Ltd.

Pinto, learned Counsel appearing for the Revenue states that Respondents has been served. He undertakes to file affidavit of service in that behalf by tomorrow i.e. 17th February, 2015.

This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 20th June, 2012 passed by the Income Tax Appellate Tribunal (the Tribunal) for the Assessment Year 2007-08.

The Revenue has formulated the following questions of law for our consideration:

"(a) Whether on the facts and in circumstances of the case and in law, the ITAT was justified in deleting the disallowance of Rs. 1,62,56,364/- being project management fees accrued in the preceding assessment year i.e. 2006-07 which was not allowable to the assessee in A. Y. 2007-08 under the mercantile system of accounting?

(b) Whether on the facts and in circumstances of the case and in law, the ITAT was justified in ignoring the fact that the assessee being a company, is required to follow the mercantile system of accounting as per Section 145; accordingly project management fees accrued in A. Y. 2006-07 as per the contract and therefore the upholding of the decision of the CIT(A) was not justified?"

The Respondent-Assessee had entered into an agreement on 22nd August, 2002 with one M/s. Kumar Builders. In terms of agreement, M/s. Kumar Builders who were to plan, manage, supervise and execute the construction of a project in Pune, were to be paid remuneration at 13.50% gross sale proceeds received from the prospective buyers of flats/shops in the said project.

For the Assessment Year 2007-08, the Respondent-Assessee has received gross sale payments in respect of sale of flats/shops of Rs. 2730.92 lakhs. An amount of Rs. 339 lakhs as paid to M/s. Kumar Builders as project management fees was claimed as expenditure. The Assessing Officer disallowed the deduction to the extent of Rs. 162 lakhs out of Rs. 339 lakhs on the basis that the same related to the flats/shops sold in the preceding Assessment Year i.e. A. Y. 2006-07.

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] by his order dated 29th July, 2010 recorded a finding of fact that Appellant had not claimed any project management fees for the preceding Assessment Year 2006-07. The project management fees of Rs. 339 lakhs claimed is an expenditure was only in respect of amounts received on sale of flats/shops during the Assessment Year 2007-08, aggregating to Rs. 2730.32 lakhs.

The CIT(A) also observed that the Respondent-Assessee had deducted and paid into the treasury Tax at Source (TDS) on the fees of Rs. 339 lakhs paid to Ms/s. Kumar Builders in respect of sale of flats/shops which had taken place during the Assessment Year 2007-08.

On further appeal by the Revenue, the Tribunal by the impugned order recorded a finding of fact that Appellant had not claimed any project management fees relating to Assessment Year 2006-07. The entire amount of Rs. 339 lakhs which was paid by the Respondent-Assessee to M/s. Kumar Builders was in respect of amount received on sale of flats/shops in the project during the subject Assessment Year 2007-08. Thus, no occasion to disallow any part of Rs. 339 lakhs paid as project management fees, can arise.

We find that the authorities namely- CIT(A) and the Tribunal have reached a concurrent finding of fact that the amount claimed as an expenditure of Rs. 339 lakhs being paid as project management fees to M/s. Kumar Builders was only in respect of amount received for sale in the Assessment Year 2007-08. Consequently, no occasion can arise to disallow any part of the expenditure of Rs. 339 lakhs on the assumption that some amount thereof is attributable to an earlier Assessment Year. The questions of law as formulated by the Revenue would not in our view arise as the deduction is being claimed on the amount paid as project management fees on the amounts received for the subject Assessment Year and not for the earlier Assessment Year.

In view of the fact that two authorities have came to concurrent finding of fact that Rs. 339 lakhs was paid as project management fees, is relate-able only to sale flats/shops made in the subject Assessment Year, no occasion to disallow any part of Rs. 339 lakhs paid as project management fees for Assessment Year 2007-08 can arise. The finding of fact arrived at by the CIT(A) and the Tribunal is not shown in any manner to be perverse and/or arbitrary. Thus, no substantial questions of law arises for our consideration.

Accordingly, Appeal dismissed. No order as to costs.